Question

On april 1, griffith publishing company received $1,548 from santa fe, inc. for 36-month subscriptions to several different magazines. the company credited unearned fees for the amount received and the subscriptions started immediately. assuming adjustments are only made at year-end, what is the adjusting entry that should be recorded by griffith publishing company on december 31 of the second year?

Answer 1

On December 31st Griffen Publishing Company should debit Unearned Fees, - $1,161 and credit Fees Earned $1,161.

To solve for the first year = (total amount received/number of months) x accrued number of months

($1,546/36 months) x 9 months = $387

$387 dollars was earned the first year from the subscription.

To solve for the second year, subtract the total amount of $1,546 by the first years total of $387 and the amount that is left is from year two.

($1,546 - $387) = $1,546

Answer 2

The company would debit the unearned fee as the balance of the unearned fee will decrease. Credit the fee earned as the income of the business will increase.

Further Explanation:

Adjusting entries:

Adjusting entries are recorded at the time of the year to record any update in the accounts. Sometimes, the trial balance does not reflect the accurate position of the company. Therefore, the company has to record the adjusting entries to keep the up-to-date accounts.

Record the adjusting entry on the end of the second year:

The company received $1,548 at the start of the subscriptions. The company would be eligible to record only earned fees of $516 per year. Therefore, in the second year, the company would record earned fees of $516. The company would debit the unearned fee as the balance of the unearned fee will decrease. Credit the fee earned as the income of the business will increase.

Working note:

Calculate the fee earned in 2nd year:

$\begin{aligned}\text{Fee earned}&=\text{Total\:receipt}\times\frac{12}{\text{Total subscriptions months}}\\&=\ 1,548\times\frac{12}{36}\\&=\ 516 \end{aligned}$

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Answer Details:

Grade: Senior school

Chapter: Adjusting entries

Subject: Accounting  

Keywords: griffith, publishing, company, received, santa, 36-month, subscriptions, several, different, magazines, company, credited, unearned, fees, amount, received, started, immediately, assuming, adjustments, adjusting, entry, recorded, the second year.